Industry Focus

 

From Paycheck Protection Program (PPP) loans to overnight advances in contactless transactions, 2020 has been an interesting and challenging year for bankers. Now, as they try to navigate changing customer and business needs, bankers are pivoting their services and interactions to reflect those changes. Recently, banking executives met in a virtual roundtable to discuss the future of this burgeoning industry.

Connie Brennan, publisher and CEO of Nevada Business Magazine served as moderator for the event. These monthly roundtables bring together industry leaders to discuss relevant issues and solutions.

How has the PPP Impacted Business?

Arvind Menon: We have been able to help a lot of customers, or their small businesses, that really have depended on banks to help them with their PPP. Certainly, conventional business has slowed down significantly, but the PPP has kept us very busy and now we are getting into the forgiveness part of the PPP loan which is going to be a challenge all of its own.

Stan Wilmoth: The uncertainty caused by the election, and the lockdown, is a major problem for businesses today. The PPP loans came out at an opportune time. One of the bigger problems that we had is net interest margin and it’s going to be with us for a year, or two or three. Forgiveness of the PPP loans would help us on about 85 percent of the loans we have outstanding. It’s going to take about a half hour to an hour to review each request for forgiveness, but if we use the abbreviated form it could cut that down substantially.

Stacy Watkins: We launched our forgiveness [information] already on our website. As a small community bank, we’ve got to get some of those off our books very quickly in order to participate in PPP wave four, that we understand is coming. In order to have the funding available to support the additional [needs] from clients, we have to get those off our books quickly. We [also] have the easy form out there, and we’ve got a video and Q&As out there. It is very much of a resource for any bank’s clients. You have to [process] your forgiveness with the bank that you did your original PPP loan with, so [we have] no pride in ownership there. Any client can utilize that information. We’ve got 30 in the queue already. We are waiting to see how quickly we can get approval back and when we can start seeing funding back here towards the bank and on the books. It’s been a very smooth process. The clients are very pleased and happy that there’s been an abundance of communication on that. I feel very confident that we are in a much better position than other cities dealing with this.

James York: We started the process [for loan forgiveness] and we’ve got a couple dozen of them in the pipeline. There’s a 90-day clock the SBA has once the application is submitted to respond and complete or deny the forgiveness. First, you’ve got to get them all in and it is going to be a process to get them in. With the first couple dozen that we’ve seen come in, they’re not filled out correctly. We have to have follow up discussions with [clients because], based on what they’ve submitted they’re only going to get half of it forgiven. We’ve got to help them provide all the payroll records accurately. It’s now on us to make sure they submit a correct and good application to get forgiveness. If not, it turns into a loan for us. The government said we weren’t going to be responsible for verifying this information and lo and behold we are if we want to make sure they get forgiven. Otherwise it turns into a 1 percent loan for us, which isn’t a lot of money on our books. We’d just as soon get those off the books and get to lending real money. We really, by year end, hope to get most of these off our books. This [program] has helped a myriad of customers. It’s been an incredible program, probably the most meaningful thing I’ve done in my banking career of 35 years for the small businesses.

Al Welch: I would agree with that comment. I think that this might be one of the most remarkable things we’ve taken on as an industry during my career. We are on the opposite end of the spectrum at Bank of America, but just to give you some context, we did over 330,000 of these loans, over 6,000 here in Nevada. The systems that were behind this didn’t exist when it started. We did the most nationally. The thing that we’re most proud of is, we weren’t the largest dollar wise. We stayed with the spirit of this program and focused on very small businesses. Here in Nevada, a little over $50,000 is our average loan. The forgiveness period was extended, which I think was very beneficial for clients. We’re spending a lot of time on the systems, the technology and the governance behind this. It’s an amazing undertaking that we all got lost in to help America and push it forward and retain jobs in Nevada. It’s an extraordinary thing that I think is overlooked in all the COVID madness.

Phyllis Gurgevich: [With the PPP], Nevada bankers infused $4.2 billion into Nevada small businesses. The vast majority of the loans fall under $150,000 and it supported 95 percent of the small business employment in our state. That ranked us 12th in the nation and as you know, Nevada does not rank that high when you rank by number of banks. Nevada bankers did great and punched way above their weight class.

How have Technology needs Changed during the Pandemic?

Welch: We tend to use the phrase “high tech” and “high touch”. On the consumer and wealth management businesses, there’s always going to be a place for the face-to-face [communication]. Technology is probably the most disruptive and it’s an amazing thing that’s happened. This year alone we’re go – ing to spend $3 billion just in developing new technology, interfaces with corporate, wealth management and consumer clients. Things that were “nice to have” are now a “need to have” and they are all expensive to build out. We are going to see this continue to explode. I think we’re going to see a lot of the trans – actional things go away. There’s really no reason for most of what happens in financial centers to happen in financial centers. But, the advice and customer care – I don’t think you can ever replace that.

Yanus Nelson: I a hundred percent agree. For us it’s about efficiency. Our focus is on being an omni channel for our clients. What can we offload, from a servicing standpoint, that our clients can do from their mobile de – vice? [That would] free up our time to help them with their relationships and more com – plex needs. They are still going to want to come in and meet with a commercial banker, face-to-face. I don’t ever see it going away, but it’s changing and evolving. COVID has just sped that up, somewhat.

Watkins: [For a smaller, community bank], it’s more of a partnership and a collabora – tion. We do have a diverse client base, but the technology piece was very challenging for us at Lexicon because we were so new. We focused on high-touch, high-technology. It’s been a challenge to get all the remote de – posit capture pieces, treasure management products in place for the business clients so we can retain some of that new business that came to the market.

York: [We started allowing] remote access to our system for key individuals. We’ve never ventured there before because of the security issues. But, with people out because of CO – VID, they can’t get into the main frame and do their job without that remote access. We’ve had to put that on so that’s been very key. We are also looking at opening accounts online. The banking industry at large is pretty slow to adopt to technology changes. We need to do a better job.

Menon: Technology is certainly a challenge for community banks, but the trend towards software as a service is helping a little bit in that there is not a whole lot of hardware [upgrades] we need to make. [There are already] cloud services and those kinds of things, that makes it a little more accessible and affordable for community banks. Hopefully that trend will keep up, but that does not necessarily mean that it’s going to get any cheaper in the sense that investment is still going to be a huge amount of our capital budget every year. It’s a little bit more affordable as we go along.

How do you Stay on Top of Cyber Security?

Watkins: [We have to do] constant testing. Regulators are requiring us to beef up staffing with regards to that. We just hired an IT officer, which is pretty unique given our size. That was a recommendation for us and we are excited to get those things in place, but it’s constant testing. That is what the examiners are looking for, for banks in general moving forward.

Bruce Ford: I’d agree. We have a security department and those men and women are so vigilant in what they’re doing. It’s fantastic. I’ll get an email from them on Saturday saying, “here’s what almost happened in your region and here’s how we stopped it.” They’re really experts at this, I can’t sing their praises enough.

Welch: We think about this from an internal and external perspective. On the internal side, we have about 1,500 people and this is the only area within Bank of America that has no budget. [We contribute] whatever it cost for technology and people. This is literally where terrorism battles are being fought and we are being attacked by the minute. How do we protect our client’s data? There is no limit on it because if the system gets compromised it compromises the business. Where this is really evolving is fraud. We are seeing fraud at levels we’ve never seen before and it’s attacking our clients. A lot of this goes to the human behavior of our client’s associates; how they interact with email and what kind of technology [they use].

How is Loan Activity Affected by the Pandemic?

Robert Sandhu: In terms of loan requests, we’ve witnessed the sharpest decline in investor owned commercial real estate purchases. I’ve witnessed more investors on the sidelines and it’s probably due to the uncertainty relating to the pandemic and the general election. On the other hand, we’ve seen an uptick in owner-occupied commercial real estate transactions which is mainly due to the relatively low interest rates and advantageous terms of some SBA loan programs. The biggest challenge that we’re currently facing is margin depression. I think, due to multiple factors, including increased competition from new loans, and declining rates, we have witnessed a decrease in interest income. In addition to that, we’ve also been squeezed on increased non-interest expenses. In short, the cost of doing business has increased.

York: We can only earn so much on loans. The prime rate is, basically, rates are zero at the Fed levels. For the few good loans that are out there, they are refinancing because rates are low. You have a refi market, but they’re looking for rates in the threes. You look at that, and say, “Well that’s not a very good spread if my cost of funds is say, at least 1 percent.” You’re going to make maybe 2 percent if you’re three or 2.5% if you’re 3.5%. Well, that’s your NIM (net interest margin). We’re used to that number being 4 percent, so that means we have less at the bottom line. Unless those rates increase, we’ve just got to cut the expenses and overhead in other ways. You’re seeing that throughout the industry. There’s immediate NIM pressure. [The NIM is] the spread that the bank makes on interest rates between what they pay on deposits and what they earn on loans. [We] are all feeling that. And, the loan demand isn’t there. We’ve got to kind of tuck in until things can get better, we get to sunnier days and we can start making some money again. Meanwhile, we’ve got to help our immediate economy and local businesses because that’s what we can affect. We can’t really affect what goes on nationally or internationally as much as we can our own neighborhoods.

Nelson: With interest margins, banks are becoming much more efficient. A good portion of that is going to be repurposing our branch network. What does that look like for the future? I think, through COVID, we’ve been pushed as an industry to fast forward into the future where we’re going. For us, it’s going to be a challenge. How do we service our clients through digital channels? [How can we] still build relationships and grow our business in a way that we’ve done traditionally through in person interactions through our branch network? That involves us making choices.

How is the Employee Market for Banking?

Ford: We have a couple of positions open. Not as many as pre-COVID. If there’s a real superstar out there and we’re familiar with him or her, there’s always room for superstars. We are always recruiting good talent or certainly trying to. The biggest challenge facing the industry, long term, is finding high quality colleagues who have been well trained. Banks stopped their training programs years ago, or many banks did, and so it’s a lot tougher to find already trained, high quality employees.

Wilmoth: I’ve had a decrease in staff throughout the year, but it’s been handled through attrition and we’ve had to reallocate staff between our branches. We are doing that much more now than we ever had in the past. We still have six of our branches closed temporarily. Who knows what the future holds? I am hiring for manager positions and I find those hard to fill. I don’t know if banking and financing isn’t a fun industry but, in some of the rural markets, I can’t find a quality leader to join us and take over these critical manager positions.

Are there Training Programs for this Industry?

Ford: I actually used to teach at community college and the AIB (American Institute Banking) class. A lot of times, over a three to four-year period, I’d see people who started off at the first class and ended with the last class and saw their growth. It was gratifying. I don’t see that happening like it used to. Now, we get people right out of college and we’ll have to train them. That’s ok too, we can train them our way. But I certainly liked it when there were formal programs. Nevada Banker’s Association has great programs, no doubt about that. Before [those programs] there were formal training programs that each bank would have and that’s what I was referring to. GURGEVICH: [We have a] program at UNLV and it’s a concentration in banking that lays over the junior and senior year for a finance major. That’s specifically to make sure that graduates come out of college knowing about the industry. There’s a steering committee that guides [the program’s] continuation to make sure it continues to evolve and meet the needs as the industry changes. Most recently we’ve developed, and are in the process of working with CSN, to certify a program that will help those folks who are “accidental bankers”. [These are] folks who came into the banking environment wanting to learn more. There will be six different courses that you can gain a certification. They will be taught by industry experts and we really look forward to rolling that out probably by Spring 2021.

What is the Outlook for this Industry?

Menon: It’s steady as we go. We’re hoping things turn around quickly. [This year] is pretty much written off in my mind as far as bank’s income and those kinds of things go. [We’re] looking forward to 2021 right now. We are in the middle of planning 2021 and trying to see what revenue and expenses and all of those things are going to be.

Gurgevich: As an industry trade association we are seeing a huge shift. We are all about sharing information and in the face of COVID it’s shifted, both how we share that information and, particularly, the type of information that we’re sharing. We spend a lot of time making sure customers know that the pandemic is a health crisis and, sure there are economic aspects to that, but there’s no threat to our nation or our state’s financial banking system. The banks are stable. They entered this crisis from a solid position. The way banks are helping their communities is by delaying, reducing and eliminating their own income so, obviously, that’s got to be balanced and watched closely. We are sharing a lot of different information with the communities. We are also seeing our members sharing a lot of information and working together on the huge technical challenges of implementing PPP. That program was stood up in about a week’s time and then pushed through ten years volume in about 10 days. It was crazy and bankers really relied on each other to help get through.

Welch: We are projecting a pretty strong rebound in Q3. We’re watching consumer confidence, but we feel like we’re going to have a pretty strong rebound into 2021. From a Nevada perspective, it is a little choppier. Specifically, the convention and the business travel components are what we’re all going to have to keep our eyes on. It’s very sector-specific and overall consumer confidence is fairly good in spending. There are a lot of really positive trends out there.

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